Why Having Cash Sitting Idle May Be Your Best Investment Strategy Right Now
Another day and another record-high stock market is what it seems like these days. That must mean that the economic recovery in America is close at hand, right?
Not so fast; the data on job creation appears to show that the situation is actually worsening.
Job creation is crucial to this economic recovery. While it is true that job creation is a lagging indicator, we do need to see an increase to verify whether or not the economic recovery is actually accelerating.
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While the stock market might be cheering the Federal Reserve’s decision to continue pumping out money, I worry that all of this excess cash is losing its effectiveness. We are not seeing any positive impact of this monetary policy on Main Street, and things are beginning to deteriorate.
The latest monthly release of the ADP National Employment Report, produced by Automatic Data Processing, Inc. (NASDAQ: ADP), showed that job creation from September to October amounted to just 130,000 new positions, worse than the expected 151,000. (Source: Automated Data Processing, Inc. web site, October 30, 2013.)
I know what you’re going to say: this decline in job creation is not a sign of a poor economic recovery, but rather a result of the U.S. government shutdown.
If that’s true, then why has job creation been decelerating for the past few months? Take a look at the job creation table below, and tell me whether our economic recovery is accelerating or decelerating:
|Month||Nonfarm Private Employment|
While I would agree that the government shutdown did impact the economic recovery, that’s just an excuse. There is no way that business owners began worrying about a two-week government shutdown in July
In reality, it’s quite disappointing, since there was a glimmer of hope last winter that perhaps the economic recovery might take hold and job creation would begin accelerating. Looking at the past few months, I don’t know how anyone believes that our economy is on the verge of booming.
Compare the last few months of private sector job creation to the stock markets, like the S&P 500.
Chart courtesy of www.StockCharts.com
Clearly, there is a vast difference between the trend over the past few months in our economic recovery and the stock market.
While there were positive signs that perhaps job creation was about to pick up at several points over the past year and a half, clearly since the summer, we have seen very little encouraging news.
If job creation and a strong economic recovery aren’t pushing up stocks, what is?
I believe the vast majority of the move up this year has been primarily generated by the Federal Reserve and its easy monetary policy.
The Federal Reserve’s goal was to improve job creation. However, things appear to be worsening. If the Federal Reserve has its foot on the gas and the economic recovery sputters and fails, what other options are really left?
That’s a real concern for me, since the emergency action taken by the Federal Reserve has been overused. It is now creating bubbles in many markets, and as you see, it’s having little impact on job creation.
Bubbles are fun on the way up, but they’re painful when they pop.
With the stock market at all-time highs and the economic recovery failing to accelerate, something has to give. We can’t continue having an ever-higher stock market on ever-decelerating job creation and companies are having difficulty growing revenue.
As I stated over the past couple of months, trying to time a market top is impossible, but I believe we are getting ever closer to a peak in the market. I would recommend taking profits and raising cash. Yes, I do realize that you don’t want to have funds sitting idle, but impatience and “rushing” to follow the herd is never a good long-term strategy.
This article Why Having Cash Sitting Idle May Be Your Best Investment Strategy Right Now was originally published at Investment Contrarinas
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